Takagi & Associates Inc. and Hawaiian-based Pacific Risk Solutions LLC are teaming up in a new arrangement to offer captive insurance "" or self-insurance "" on Guam.
One benefit of captive insurance is that doctors on Guam will have a viable option for medical malpractice insurance. Takagi is now working with a group of local doctors to put together Guam’s fourth captive.
Guam has three captives: Dick Pacific Micronesia has a captive that is managed out of Honolulu; TakeCare Insurance Co. Inc. has a captive and Takagi manages a captive for Vincent Insurance Services "" a California specialty contractor.
Tony J. Schmidt president of Pacific Risk Solutions; said captives were particularly appealing for medical malpractice insurance.
"In the mainland U.S. you see a large number of medical malpractice claims that have occurred which started on the east coast about four or five years ago. Pennsylvania was one of the first states to have problems with malpractice insurance and carriers pulling out of the market which seems to be what they are doing on Guam now."
The solution was to form captive insurance companies he said. "Instead of pure captive they formed what’s called risk retention groups. A group of physicians came together and formed their own captive insurance company to be able to buy their first layer of insurance maybe their first $100 000 of claims. Then they bought re-insurance above that."
"As they set the program up in Pennsylvania "" a risk retention group gets a license in one state and then registers in other states "" they’re able to provide a direct insurance policy somewhat similar to a licensed insurance company. So that captive group from Pennsylvania and around the east coast is now in all 50 states writing policies for different types of doctors. You see that from Pennsylvania to California "" all over the U.S. The medical malpractice market is a very hard insurance market which means the rates have either gone sky high or companies have pulled out of the market place. That’s been happening on Guam " Schmidt said.
David E. Silva business development manager for Takagi; said that insurance was about protection and medical malpractice fears were valid. "Whether or not a doctor has had a claim that’s not to say that tomorrow he or she doesn’t deliver a baby whose mother feels something was caused by the doctor; or an operation where the patient doesn’t recover and their survivors feel that the doctor caused harm."
Silva told the Journal that the process to develop a captive or self-insurance on Guam was detailed. "We meet with a customer and get an idea of their interest. We get an idea of their risk management program "" or lack thereof. In some cases they say they have a self-insurance which raises a pretty big flag. It’s something we should look at "" and we put together a group which includes an actuary and a business planning team. We bring a legal team to the table. We bring an audit team to the table to structure their insurance business."
Pacific Risks Solutions is partnering with Takagi to put captive models together in Guam. "We brought him [Tony] out to help us explore the potential for business growth out here. It will be Takagi that structures the Guam companies. Tony is an example of the expert network we bring to the table when developing the companies."
Silva said instead of paying a large premium with no losses to an insurance company with captive insurance the large premium is paid with no losses to your own insurance company. Minus any expenses of running your insurance company the profits are yours.
"A captive takes the place of the insurance company. It’s owned by the insured. You pay a premium to your captive. Your captive buys the re-insurance. Your captive pays your losses. But at the end of the day instead of giving all of this money away you’re putting it in your own company. Minus the administrative cost you get to keep the rest. Assuming you don’t have claims ever in about 15 to 20 years down the road all this money comes back to you " Schmidt said.
He said that captive insurance rates are very competitive. "Typically you want the rates to be similar to what they are in the market place"¦ or rated at an appropriate insurance rate so if the market skyrockets and you’ve only been paying $10 000 a year in premiums but now you have to pay $21 000 "" in your captive you can continue to pay a $10 000 a year premium. You look at the market and charge the same rate to your captive because you want to build up money to pay for potential losses. It’s a tool. You don’t want to set it up and just pay yourself a $1 000 program. You’d be undervaluing the program."
Silva said a number of companies would benefit from captives. "We’re really just looking at different things on Guam. Different relationships that we can build with companies that have high risk management costs; high insurance costs; and high deductible programs " Silva said.
With the economic boom that is expected to accompany the relocation of 8 000 Marines to Guam Silva said other industries to look at were the hospitality industry and the construction industry. Similarly he said autonomous government agencies the Port Authority of Guam and the Antonio B. Won Pat International Airport Guam could also benefit from a captive arrangement. He said captive insurance could also attract American companies who do business in Asia and foreign companies drawn to Guam by a captive arrangement.
Captive insurance began in the Caribbean in the 1970s. Schmidt said Colorado was the first state to have a captive law in the 1980s. "From there it’s grown from a small number of domiciles to 65-70 states and countries with captive insurance laws. There’s been more than 5 000 captive insurance companies formed worldwide."
He said Hawaii’s captive insurance law has an economic benefit of between $12 million and $15 million a year. "Hawaii brings in premium taxes to the state which account for $1.5 million to $2 million dollars a year from premium tax. It also brings in an economic benefit because Hawaii requires each captive owner to have a board meeting in Hawaii each year. The board meeting brings in two to five board members from each captive to Hawaii. Sometimes they’ll bring their families along and stay for multiple days so it has an economic benefit of $12 million to $15 million a year."
Silva said that the way Guam’s tax law is structured Guam wouldn’t get the tax benefit from the industry but it would increase employment in a white-collar industry. "You’re going to need bankers to deal with the investments. You’re going to need insurance professionals to deal with the programs. You need legal offices. It might be an opportunity for an actuary to come out of the woodworks in Guam. It’s a way to promote a new industry as an alternative to tourism." MBJ